7 Colo. App. 45 | Colo. Ct. App. | 1895
delivered the opinion of the court.
This action started as a simple suit on a promissory note, dated the 15th of February, 1890, whereby one year after date the appellant Kinkle promised to pay The Bijou Reservoir and Canal Company $200 with a certain specified interest. In the original complaint Harper, the appellee, simply averred an indorsement and transfer to him as trustee, whereby, as he pleaded it, there came to him the right of action against the maker. On demurrer the complaint was held insufficient, apparently because it failed to state the terms of the trust out of which the trustee’s title sprung. We are not concerned with the regularity or propriety of this ruling. The plaintiff accepted the result and filed an amended complaint, which the defendant answered. The answers were demurred to and on the issue of law thus formed judgment was rendered for the plaintiff and the case is brought here by appeal. To apprehend the situation we are compelled to state the general features and allegations of the complaint as well as the substantive matters contained in the two defenses which were adjudged insufficient. The complaint set out the instrument whereby the trust was created. Omitting
One of the difficulties in the case is rendered apparent by this statement. It springs from the failure of the pleader to state some facts which must appear to entitle him to recover. It likewise renders it exceedingly difficult to state what the .law is by which the rights of the parties must be measured and determined. There is no averment of the absolute issue and sale of the sixteen bonds. So far as can be gathered, the bonds were probably issued by the company, but whether they were disposed of and the cash received by the trustee or the company nowhere appears. The sale of the bonds and the receipt of the purchase price are facts absolutely essential to the application of the principles for which the appellee contends. They are likewise necessary to the ascertainment of the validity of the defenses, as will be very apparent from a succinct statement of their substance.
Two matters were pleaded separately. The first was a waut of consideration. The basis of the plea consisted of allegations respecting the terms and character of the subscription and the status of the capital stock of the company. The pleader averred a representation by the company of its possession of three hundred shares of unsubscribed capital stock of the par value of $100 per share. Two hundred shares were said to be open to subscription and the other one hundred was to be deposited with the trustee as collateral security for the debenture bonds about to be issued. So far as concerns the particular note in dispute, it was alleged to have been given in payment of a subscription for two shares of the capital stock of the Bijou Company. It was next
The second defense alleged a failure of consideration, and in much detail, which need not be repeated here, set up the scheme which led to this litigation. Stating no more than is necessary to make the matter plain, it was set out that the Canal Company had built a canal from the source of supply to a point a few miles outside of the limits of Fort Morgan. The company desired to continue the construction of the canal to a point beyond the town, whereby the water would be available to these various subscribers. The company advertised and stated its intention to continue the construction and to devote the money which would be realized from the sale of its bonds to this purpose, using this capital solely for this object. It was alleged the subscriptions were procured upon the faith and strength of these representations, and to secure the advantages which would result to the subscribers by the extension of the canal and the delivery of water. The answer then proceeded to set out in considerable detail the failure of the company to carry out its promises and the application of the funds to other uses than those to which the company had agreed to put them. It was stated the company had used the money to pay old debts, had totally failed to complete the canal and had never delivered the water according to its declared intentions and according to its agreement with the subscribers. To this answer the plaintiff demurred and the court rendered judgment in his favor.
The difficulties with which we are beset in any attempt to state the law which must control this case must be apparent from a careful consideration of this statement. The plaintiff
The difficulty is to settle whether the circumstances of the transaction make the transfer one according to the usual customs of trade, or constitute such a departure as to open the action on-the note to the defenses pleaded. Each case
The chief difficulty is, we are not advised by the pleading whether the debenture bonds were in fact issued for a valuable consideration paid by the holders in whose interest the suit is brought. If the pleading or the proofs should show the issuance and sale of the bonds by the company on the strength of this created trust, then the trustee would take the note for a valuable consideration paid before maturity and hold it free from the equities which would otherwise prevail as between Kinkel and the company. The complaint is defective in this particular and it should be amended when the ease returns to the trial court.
It follows from this conclusion that the plea of a want of consideration would not be available as a defense. Whether
The appellee insists the terms of the trust and of the receipts advised the trustee of the purpose for which the notes were given, and he was bound to know whether the company was able to carry out its contract with reference to the subscription, and for this reason the suit on the notes should be open to the defenses pleaded. We cannot assent to this proposition. According to the terms of the arrangement the stock was not deliverable upon the subscription and the execution of the note, but only on its payment, which rvas a year from its date, and then only as to fiftjr per cent of it; the balance of it being subject to a pro rata deduction which might be rendered essential by the nonpayment of some of the paper. It is a general rule to which there are few exceptions that the knowledge of the holder of a note that it was not to be paid except on a specified contingency would not destroy his title as a bona fide holder for value, even though the contingency had happened which would defeat a recovery if the suit had been brought by the original pajree. Wherever a note is \7alid in its inception, a default in the performance of an executory agreement will not defeat a recovery by the holder, even though he may have been advised of the existence of the agreement. The executory contract in this case rvas an agreement to deliver stock. A failure to deliver could not be made a matter of defense, even though that executory contract was, as between the payee and the maker, the consideration upon which the note was executed. Whenever a bill or note is disposed of for a valuable consideration, the holder is not bound to inquire whether the indorser has performed or will be able to
The situation of the trustee is pressed upon the attention of the court as a basis for the contention that his knowledge concerning the transaction must be taken to be the knowledge of the holders of, the bonds and therefore operative to deprive them of the benefit of the protection afforded bona fide holders for value. Wallace is said to have been intimately connected with the Canal Company, and Harper, his successor, to have likewise sustained some relation to the corporation, and to have been an officer of the bank which received and paid over the money coming from the sale of the bonds in liquidation of an old debt. The knowledge of these parties is therefore claimed to be the knowledge of the holders of the bonds. If the proof sustains the allegations of the complaint and answer, and also the inferences which we have permitted ourselves to indulge in respecting the transaction, the position is not well taken. When the trust was created and the stock and the notes were turned over to the trustee, the bonds had not, so far as we are now able to discover, then been sold and they were not in the hands of the present holders. Whether, in point of fact, the bonds had been issued ready for delivery does not appear. This, however, would be unimportant if the bonds remained unsold when the trust was created. At that time Wallace, the trustee, and Harper, his successor in trust, were the agents of the company alone, by which they had been selected and appointed. They bore no relation whatever to the subsequent eestuis que trust, who assumed that relation by virtue of the purchase of the bonds. If such be the fact, the buyers cannot be charged with the knowledge which may have been possessed by the trustee. As was said in a well consid
If the ultimate proof shall sustain the allegations of the pleadings as they now are, and as they may be when amended, the rights of the parties must be measured by the rules which are here indicated. Unless there should be some very wide variance between the case as it is made by the present pleadings and the proof as it may be offered, the plaintiff must recover on the note and the defenses will be no bar to the •action. If the parties desire to continue the litigation, the plaintiff "should amend his complaint in the particulars suggested. If there is no controversy as to the facts and they remain as indicated and our inferences prove accurate and no defense is put in other than what is stated in the present action, judgment must of necessity go for him.
The case is therefore reversed. The plaintiff will be permitted to amend his complaint, and the defendant to answer as he may be advised otherwise than as his defenses may be controlled by this opinion.
Reversed.